It’s a great time for brands doing over $20M D2C online to investigate their global marketplace options. It’s a great hedge to an uncertain future with Amazon (more on that below), is an entirely new revenue channel, and stacks well with other ongoing digital initiatives. To make the case for starting the investigation process, and to highlight the differences between Alibaba and Amazon, I’ve summarized macro data across both the markets they operate within (US + China) and their 2017 financial results.
I’d love to hear other perspectives on this topic – please comment or message me with any thoughts!
The Markets they Operate Within
A Financial Snapshot
As supported by the financials, clearly, these two companies are operating with entirely different strategies. Even though they are operating almost identical businesses (online retailers with cloud computing and innovation divisions), Alibaba is extremely profitable, while Amazon is operating with razor-thin margins. Amazon has built their business on being the low-cost provider, and have taken ownership of the end to end retail experience through fulfillment. Meanwhile Alibaba has spent more time creating a premium and branded digital experience, serving more as a traditional marketplace than the retailer. In addition, Alibaba has more ownership of the financial transaction (Amazon limited by gov’t regulation in this space) and has a social media business (highly profitable digital advertising).
As a public company, revenue growth is king, but eventually, you need a path towards profitability in order to justify a high valuation. Amazon continues to see exceptional top-line growth (+30% the last two years), but they need a long-term plan towards profitability in order to justify the valuation. From what I can see, that plan consists of four major levers 1) web services + innovation divisions 2) Amazon-branded products using Alexa (data collectors) 3) Amazon Family of Brands (Amazon Essentials, Simple Joys, Goodthreads, etc.) 4) Amazon prime + content. It’s important to note that none of these strategic imperatives involve creating a better relationship with existing brand partners, in fact, quite the opposite.
Alternatively, Alibaba has already proven that they can be very profitable while maintaining a symbiotic relationship with brands, as evidenced by the branded digital experiences they facilitate on TMALL and on initiatives such as Luxury Pavilion. What’s even better for brands, is that Alibaba seems to have more direct competition from JD.com and others, whereas Amazon is further distancing themselves from competitors like Walmart. As Chinese marketplaces find themselves competing for brand partnerships, the brands become the beneficiary with better overall packages. Looking further down the road, I also believe that international marketplaces are much more likely to provide more and more meaningful customer data back to brand partners as part of their overall offer, which will allow brands to incorporate that data into all aspects of their business.
From a business perspective, if you are a brand considering your partnership options across the global marketplaces, all signs point towards a better long-term experience with Alibaba than Amazon. Although their businesses may look similar from afar, Alibaba and Amazon couldn’t be more different in how they are approaching their relationship with brands. I encourage brands to investigate what the global marketplaces have to offer and consider incorporating them into their strategic plans if the conditions are right.
Global Marketplace Visualization
Although this post focused on Alibaba and Amazon, the complete global marketplace landscape is much more diverse and evolving rapidly. See a nice visualization from Linnworks, below.
If you’re a brand who needs support in developing your global marketplace strategy, please feel free to reach out to me. At Kogent, our mission is to optimize the trajectory of a brand’s digital maturity curve by helping them to make intelligent and prioritized investment decisions while also ensuring successful execution of those strategies.
About myself, Joe Tatarski. I’ve spent the last 10 years in e-commerce serving in various strategic roles within the e-commerce agencies. My education is in finance, and as a result, I always look at opportunities through the lens of financial value creation. I recently co-founded Kogent, a company that provides expert navigation to brands and retailers in digital commerce.